Printable cheat sheet

    Texas real estate property management math cheat sheet

    Built for Texas sales agent exam prep. Use this to build the operating budget in order: gross potential rent, vacancy, effective gross income, operating expenses, and net operating income.

    Use the calculator
    Gross potential rentUnits x rent x 12

    Full-occupancy annual rent. Vacancy comes off this number.

    Vacancy lossGPR x vacancy %

    Vacancy and collection loss is subtracted from gross potential rent.

    Effective gross incomeCollected rent + other

    Add other income such as laundry, parking, or fees after subtracting vacancy.

    Net operating incomeEGI - operating expenses

    NOI excludes the mortgage payment and income taxes.

    Management feeCollected rent x fee %

    Usually a percent of rent actually collected, applied after vacancy.

    Occupancy rate1 - vacancy rate

    Occupancy and vacancy total 100%.

    The exam setup rule

    1. Find gross potential rent: units times monthly rent times 12.
    2. Subtract vacancy and collection loss.
    3. Add other income for effective gross income.
    4. Subtract operating expenses for net operating income.
    5. Apply the management fee to collected rent unless told otherwise.

    Five worked examples

    Gross potential rent10 units at $1,200 per month

    10 x 1,200 x 12 = $144,000 gross potential rent.

    Effective gross income$144,000 GPR, 5% vacancy, $6,000 other income

    144,000 - 7,200 = 136,800 collected. Plus 6,000 = $142,800 effective gross income.

    Net operating income$142,800 EGI, $48,000 operating expenses

    142,800 - 48,000 = $94,800 net operating income.

    Management fee$136,800 collected rent, 8% fee

    136,800 x 0.08 = $10,944 management fee.

    NOI to value$94,800 NOI, 8% cap rate

    94,800 / 0.08 = $1,185,000 value by the income approach.

    Traps to check

    1. Do not subtract the mortgage payment to find NOI.
    2. Do not add other income before subtracting vacancy from rent.
    3. Do not apply the management fee to gross potential rent when the stem says collected rent.
    4. Do not forget to annualize monthly rent.
    5. Do not include income taxes or depreciation in operating expenses for NOI.

    Sanity check

    1. Effective gross income is always less than gross potential rent when there is vacancy.
    2. NOI is income minus operating expenses only, before financing.
    3. Higher vacancy lowers collected rent, effective gross income, and NOI.
    Practice the patternPass Texas drills NOI, operating budgets, and the income approach.

    Use the calculator, Math Coach, Trap Library, and Texas-specific questions at passtexasrealestate.com.

    Get Pass Texas

    Sources: Pearson VUE Texas Real Estate content outline (Real Estate Math) and the TREC Candidate Handbook. For exam prep only, not investment or accounting advice.

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